“Nobody has a good idea about what’s going to” exist of the third-largest US automaker once it goes into bankruptcy, Robinet said in a speech Thursday in Detroit.

Chrysler, propped up by US$4 billion in federal loans, must erase most debt, get a new US labor agreement and finish the Fiat alliance this month to qualify for as much as $6 billion in additional loans. Without the money, Chrysler officials have said they likely will file bankruptcy and sell off assets.

Prospects for a successful restructuring dimmed on Wednesday after Chrysler’s lenders offered a debt-reduction plan that was rejected by the Treasury. Targets set by the Obama administration are almost undoable, Robinet said.

Fiat, already working with Chrysler to prepare for the alliance, would likely have an advantage over other bidders on assets in a bankruptcy sale, Robinet said. Chrysler’s Jeep brand and minivans might attract buyers, he said.

“As we move forward in this process, we believe it’s important to keep all options open,” Shawn Morgan, a Chrysler spokeswoman, said Thursday in a statement. “We hope we can reach a conclusion that the US Treasury and the administration deems appropriate given the guidelines that have been set.”

Lenders’ proposal

Lenders holding $6.9 billion in secured loans gave Treasury a proposal to reduce Chrysler’s debt by 35 percent in exchange for an ownership stake of as much as 40 percent, people familiar with the talks said. Cerberus Capital Management LP owns 80.1 percent of Auburn Hills, Michigan-based Chrysler, while former parent Daimler AG owns the rest.

An official in President Barack Obama’s administration said Wednesday that the offer proposed an unjustified return for the lenders and asked them to “take a more constructive position.”

The proposal also asks Fiat to make a cash contribution to its proposed Chrysler alliance, something the European carmaker has repeatedly said it wouldn’t do.

Chrysler still must reach an agreement with the United Auto Workers union to reduce US labor costs and pare its obligation to a retiree health-care fund.

“We are continuing to work towards an agreement that will be in the best interests of Chrysler workers, retirees and the communities where the company does business,” UAW President Ron Gettelfinger said in an e-mailed statement.

Chrysler is working to close differences with the Canadian Auto Workers union about lowering hourly labor costs by C$19 ($15.37) from C$76. Negotiations with the Toronto-based union are continuing. CAW President Ken Lewenza said Wednesday he expected to reach an agreement with Chrysler before May 1.

Source: Bloomberg